GCUC Podcast x Brave - Shay Bolton & Kirill Azovtsev, Savills

Speaker A: Welcome back to Brave Ideas. I'm your host, Caleb Parker, and this season was recorded live at Jucy's 50th edition in New York City. The flex industry spends a lot of time talking about operators, but what does the world look like from the occupier side of the table? What are enterprise customers actually buying? How are they evaluating flex? And what do they really care about when making workplace decisions? To help answer those questions, I'm, um, joined by Shea Bolton and Kirill Avesta, uh, from savl. Together they spend their time helping occupiers navigate workplace decisions and understand how flexibility fits within the broader portfolio strategies. In our conversation, we unpack how enterprise customers are using Flex today, what occupiers actually value when evaluating providers, the growing role of hospitality and customer experience, and how landlords are responding to changing demand. And finally, where the deal structures are evolving across our market. If you're trying to understand where demand is headed, we. This is the conversation for you now. Without further ado, let's get it started. Welcome to Brave Ideas. Shay, Kirill, thank you for having us. Good to be here at, uh, JSuites in Manhattan at Juicy's 50th. Big shout out to Liz Elam for bringing this together. Enterprise flex has been a hot topic lately, and so we want to dive into that a little bit and, uh, talk about it from, uh, an operator perspective, uh, and talk about winning deals as well. So before we kick this off, though, I, uh, want to start with you, Shay, with a question. You obviously advise large occupiers often, uh, under traditional office needs.

Speaker B: Yeah.

Speaker A: When does flex start coming into the conversation and what does that look like

Speaker C: over the course of time, like from the genesis of coworking and the weworks of the world. It was really a conversation towards the end, like, this is a band aid solution, whereas now I think it's a little bit more involved from the beginning, middle and end of the conversation when you're talking to larger occupiers. Right, because it's become a part of like, uh, a portfolio decision. It gives occupiers flexibility, it gives you optionality, whether you're scaling up or you're scaling down, having that amenity, whether that's as your core real estate operator or it's an amenity in the building. Right. I think you have companies that really value that as an entity. I can give a great example. Carol and I are working with an organization right now in Midtown where a big driver in their real estate decision. This is a 70, uh, thousand square Foot tenant was to have a flex provider that primarily focuses more like on conferencing space but still in that same arena for overflow. Right. You, you know, you might be trying to understand the best way to physically occupy space but to have that amenity and have that as an option for both sides of the deal is incredibly

Speaker A: beneficial from a company perspective when they're looking at flex. In this particular deal they wanted the landlord, they were going to take space in the building, direct deal as a direct deal. But they, but they needed that overflow conferencing space ran by professional organization. So they shortlisted buildings that only had that.

Speaker C: I wouldn't say that necessarily had it but I think it was the biggest driver in what led us to the deal making process that we're in. Knock on wood, we're at the 11th hour of the deal but, but still I think that was one of the biggest drivers that helped kind of push them there because you have companies that are utilizing it for just your primary office use as well. But that's evolved. Right now you have it as uh, conferencing space, as uh, event space and that's becoming more and more prevalent to organizations that are you know, trying to bring people together in a environment like this.

Speaker B: And I think also important to note uh, the additional services that the co working provider offers as part of being in that building which is food delivery, food making, there's an outdoor terrace, there's a gym component that the tenant that's in that building that's signing a larger lease can use that as an amenity and potentially even transition uh, in to using that co working provider as their facility manager. Right. So it's sort of, it's a suite of services that you uh, know they've identified and they said look, this is a very opportune time to take advantage of this. Having the co working business in the building is really important and we're seeing that a lot more. But also the additional services that some of these companies provide, it's also a big add on.

Speaker A: In the UK there's been a big movement of flex operators and pitching landlords. Mhm on. Look, we're going to come in and take over a certain footprint of flex space but we can also run front of house of the building and sometimes back of house and other amenities. Uh, are you seeing sort of that conversation get, become more prevalent in New York?

Speaker B: Yes I do. I think there was a lot of landlords over the last call it five to seven years that have tried to do it themselves, try to Run their own coworking operation, but has not done it very successfully. I think the co working companies that, you know, that lease space that are always in front of the tenants and their members of these co working locations, they are interacting with them day to day so they get initial feedback very, very quickly so they can service the tenants a lot better and they can provide, you know, exactly what they need versus the landlords that think in a bigger picture how do we lease all the space in the building, how do we refinance the building, things like that. So yes, we are seeing that the coworking businesses are also getting into customer service on behalf of the landlords.

Speaker A: So is that, is that when you're doing deals on behalf of the operator with the landlord, is that conversation with the landlord changing? And what are sort of the expectations from the operator of the landlord today because of that?

Speaker B: You know, there are two buckets, I think we are seeing a flight uh, to quality from a lot of the tenants that are going into a higher class buildings and are willing to pay a little bit more to be in a better building so they can recruit talent and retain talent and offer a better office space for their, you know, workforce. So in those tenants that are looking at those buildings, yes, that is very important and they want to know what the amenities are in the building and to what extent those amenities could be utilized for the tenants in those buildings.

Speaker C: Right.

Speaker B: What additional services the landlord provides, uh, as, as uh, you know, to their tenants as that co working business. Uh, and then there's other you know, sector uh, of uh, companies that just you know, they want to focus on lower cost alternatives. The side street buildings try to be in there um, at just a lower cost basis.

Speaker A: Right.

Speaker B: Then amenities don't matter as much. But we're seeing a lot less activity

Speaker A: in that sector when you're actually representing the operator in acquiring space um, from a landlord and maybe they're taking a lease or management agreement, whatever it might be. When you're having that conversation with the landlord on behalf of the operator, what is the operator asking of the landlord though specifically today? That Maybe was different five or 10 years ago.

Speaker C: A cowork operator, like a traditional, like

Speaker A: a co working operator, to clarify to um, asking the landlord, okay, we, we had these expectations today versus it just being a tenant, uh, landlord transaction.

Speaker C: Right. Because you know it used to be your traditional lease that you were signing and we've, we've seen how that's proven to not be so successful and it puts companies in a very precarious position. So that's why I've seen the evolution of profit sharing and management context. And you kind of. That kind of runs the gamut. But I think it's more of a partnership now. I think a lot of the institutional landlords, the way they're looking at operators, you know, especially cowork operators, is what is that partnership going to be in the building? How do we. How is this mutually beneficial? How do we have more of a hospitality element to the way that we run our building? Like to Kirill's previous point, where you've got some of these, like, smaller, more boutique Class B, Class C buildings, it's not necessarily relevant. It's not a big part of the conversation because you can operate and become a separate entity as a cowork operator elsewhere, but the partnership with the landlord and the cowork operator is crucial. You have to have a good partnership where you can. It's mutually beneficial. You're selling each other.

Speaker A: It's interesting because, um, yesterday we had a conversation around how operators. There's a lot of barriers to being able to do deals with landlords because different landlords have different, um, business plans, different landlords have different, uh, lender requirements and so forth. So, uh, often the operators are having to pitch the landlord. But it's interesting that you're saying they're both pitching each other. So when the landlord's pitching the operator, how does the landlord need to frame the conversation to attract that operator in to do that partnership?

Speaker B: Uh, typically it happens when the landlord is about to embark on a major renovation of the building or throughout their portfolio of buildings. Right. And usually what they do is they create a plan of what they're thinking about, uh, as it relates to coworking hospitality, as Shay is mentioning. And then they go out essentially to all the operators and, you know, there's four or five big names that they start the process with, and then they essentially work together with their architect, with the landlord architect and the design team for the coworking providers to usually finalize a plan that works for both sides. Right. Because a lot of times landlords think they want something, but at the end of the day, the market is dictating something else. So that's when the coworking providers and companies can tell them how the space should be laid out. Should we have larger rooms, should we have smaller rooms, how much space should we contribute, uh, towards conferencing and things like that. Right. And which design is going to work better in this specific neighborhood versus the other? So it really depends. But a Lot of times we're seeing co working operators go to the landlords and pitch them on the idea of essentially improving the experience throughout the building and essentially helping them get from a B class building to an A building. Right. Or B, you know, B minus to B plus. Right. And try to improve the entire experience which today everybody is looking for, even if it's a lower cost alternative type building. So it's a little bit of an edge that co working provider can add to the building.

Speaker A: So can we dive a little deep on the uh, deal itself? And you've done some deals with operators, putting them in space. When you get down to the final hour, have you experienced where everybody feels like they're on the same page? You're going to do this deal.

Speaker B: Mhm.

Speaker A: And then it falls apart at the last hour.

Speaker B: It happens more than we can. Yeah.

Speaker A: What is the biggest driver of that?

Speaker B: It's usually security deposit.

Speaker A: Really.

Speaker B: Entity. Yes.

Speaker A: Okay.

Speaker B: The entity.

Speaker A: The lack of.

Speaker B: Correct.

Speaker A: Okay. Because.

Speaker C: Well. And the comfortability of it all.

Speaker B: Correct. Right. Because what has happened is that companies like Regis, um, companies like WeWork and other operators, you know, when the times are bad and the entity that's on, you know, uh, on the leads is not the main entity, there's a way to restructure the deal and it usually happens in the most, you know, unfavorable times for the landlords. Right. So the deals fall apart at the end, all, all the time. So it's. And I would also add that construction cost is a, is a big ticket item for a lot of these deals. Right. Because everybody going into the space and saying, you know what, I'm going to spend X on the deal and then you're really not starting to price out the construction cost towards the end of the deal because you know, you at least want to know that there is a, an understanding, there's a business understanding of what the deal would look like, what the finances are uh, going to look like and how the deal is going to be underwritten by the co working companies. So security deposit entity itself that's going to go on the lease and the construction cost. Those three are, you know, you almost, you almost want to start.

Speaker A: I was negotiation. Why would that, why does that happen at 11th hour? That should be like a first conversation.

Speaker C: Because it's a guy, it's a broker thing too. This is like no shameless plug, but it is, you want to have, you want to be able to have a good broker, you want to have a better, you want to have a good consultant, you want Someone that's going to advise you from A to Z. And if you're not properly analyzing a deal and the financials that are baked into that deal, just like a landlord or coworker operator is underwriting the deal, and we do the same from our lens. And you have to understand all these risks that Kirill's mentioning that blow up a deal at the 11th hour. You have to bake them in at the beginning so you don't have that same sticker shock. And mind you, it still happens. Like, uh, that's just, you know, you're being in this industry, uh, there's never a dull moment, but, you know, you just never know what can happen. And that's how some of these things do evolve. But that's why I think it's super important to have a broker, irrespective if it's us. I think every, any company that's looking to get into the commercial real estate world, the office world, what have you in the commercial real estate sector, you need to have somebody that understands the market and understands the business. Because if you don't have someone whose fiduciary responsibility and interest is to you and your organization, you can end up in a very precarious position at the end of the deal with all of these costs that may not have been laid out by ownership. And then again, you're, you're up the creek without a paddle and you've got nowhere to go.

Speaker A: Well, I would say that, um, you know, we in the coworking world need to be able to speak the language of the, of the landlord and understand the real estate. Um, and a good broker is invaluable in that conversation. I would also say that, uh, it's important to have a broker to help the landlord understand the coworking business. Um, and speak our language. The underwriting you were talking about earlier, I think it's very smart at the beginning. You know, what we do on our, is we look at a building, comes to our filter and we decide we like it. We're going to do a first pass of an underwriting bit, high level in the beginning to see if it hits our numbers. And if it does, then we start doing some drawings and then we get down further line. You do want to have their Qs or their architects and your interior designers kind of work together to make sure we're all on the same page on what's being delivered. Because if they're going to give us TIs, we got to understand how we're going to pay that back. And Is it going to work? To me, that's client.

Speaker C: Then the fact that you know all this.

Speaker A: Uh, well, you have to do that up front. You have to.

Speaker B: Is in a dynamic market, specifically in New York City, to price everything out and to get an understanding what everything will look like will take you weeks. A lot of times you have to move very quickly in the, in the proposal. Right. Because there's going to be, there's likely going to be competition and nobody wants to be in a competitive scenario of a negotiation. However, on every deal that we negotiate in New York City, there is always a risk of losing the space. Whether the tenant above the floor that we're looking at will expand. And it's landlords, you know, it's a landlord's first call. Right. They want to make sure that the tenants that are in the building that are growing, you know, they'll give them a first shot in space. So.

Speaker C: And understanding their rights to do so. As an operator, you should understand what the landlord's rights are and the other tenants in the building as far as

Speaker A: like a, uh, fresh. Fresh. Right. Refusal, you mean?

Speaker C: Yeah.

Speaker A: Landlords are traditionally and rightfully so risk averse.

Speaker B: Yes.

Speaker A: Or they want to manage the risk.

Speaker C: Yep.

Speaker A: We need, we need to be able to manage our risk. So when there's a competitive process from your perspective, you've got a coworking brand that's your client and you're presenting them with different options. When do we. Because it's a risk for us to put in the resources to go through those weeks of work. It's not cheap or free. So there's a risk that we don't. We're going to lose it. Yes. When do we take that risk? What does the deal need to look like and the building need to look like for us to say, okay, let's get into this.

Speaker B: It's important to, uh, understand the bones that you're kind of going into. Right. If there is a. If there was an existing co working business before and there is already some construction that was done, I think that's something that you would want to be looking at right away as a coworking operator. But second, also understanding of what the profile of the landlord is, first you have to do the check. If that lender has ever done a co working deal. And at this point, co working has been around forever and it's growing exponentially. If the landlord has never done a deal with the co working operator, it's very unlikely or a low probability for you to convince them to do a deal with you as a newer operator. Okay, right. So that qualifying that is a number one priority. Trying to understand if the, then, then if the landlord has done deals with co working businesses, it's also important to then understand what their level of risk is already existent throughout their portfolio with other co working providers. Right. So that's the second piece that you want to identify there. Then you also want to understand who the uh, lenders on the building are and what their debt to equity ratio is. So then you can, is this publicly available information?

Speaker C: No, you got to call us.

Speaker B: But, but you know, it's just, you have to, you know those are the first three steps.

Speaker A: What, what gives us the green light on each of those three steps to allow us to move forward.

Speaker B: You have a landlord that has done deals with coworking, they have low debt on the buildings, you quickly look how many other operators they have. You want to understand who other operators are. Be good to know what the occupancy is in those spaces as well and

Speaker C: how they structure leases.

Speaker B: How they structure leases.

Speaker C: Like are they paying for the build? Like are they doing a full build to suit? Like what is their typical envelope offering to their tenants? Because then that cost obviously may come down on you and you want to understand how they typically structure deals and what their out of pockets are. Your capex is an incredibly important piece to all of this.

Speaker A: Is there a trending consistent package today that you're seeing in the market for, from, from landlords?

Speaker C: Yeah, absolutely. Um, again it depends on how the buildings are capitalized but I think in the world that we're operating in, you're having, you're seeing long term leases, right? You, New York City is a, is a hot market right now. So you're looking at 7, 10, 15 year deals and when you're dedicating, you know, your business to that length of term, uh, you're expecting ownership to come out of pocket. They're going to build the space for you. It's a full landlord build to suit.

Speaker B: That's if it's a regular office tenant.

Speaker C: Right, right.

Speaker B: For co working it could get, you know.

Speaker C: Yeah, this is more, this is more of a blanket statement right from where we're sitting. Again, if you're speaking to like your typical market, again it is a little different with a cowork operator. But if we're speaking to like high level market MHM data and stats, 7

Speaker A: to 10 years and they're paying 100% of the capex to fit it out for traditional tenants. But if a coworking operator comes in on a lease like a traditional tenant, will they get the same package?

Speaker B: Uh, the short answer is no. The long answer is it would depend on the rent level that the coworking operator is willing to commit to and if they're doing a straight lease and, and if they're willing to put their actual entity on the lease that has, you know, good amount of assets under. Right. If that's the case, then yes, you, you're going to get very similar to what, you know, the tenants are getting. Right. The regular tenants are getting on a longer term lease and a longer term obligation. So it really depends. And then some landlords are more amenable to it, some landlords are not.

Speaker A: I appreciate that. If everything stacks up like a traditional tenant, it's going to be exactly the same package.

Speaker C: Right.

Speaker A: Is there any, maybe an example, uh, of some deals that you've seen happen lately.

Speaker C: Yep.

Speaker A: That you, uh, can describe what that, what the structure looked like?

Speaker B: There are two, there are two deals that are good examples. Right. One is a deal where there was an existing co working provider that went out of business. The landlord was hurt. They had a big chunk of the building. The co working operator did. We came in and represented a company that took it over and uh, they did a management deal structure where there's a profit share back to the landlord, but they've put in some capital capital into refinishing the space, furnishing it and doing the IT work.

Speaker D: Right.

Speaker B: The operator put the capital, the operator put the capital. Right. Even though it's a management deal. Right. So it's a, it's, you know, not a direct 50, 50 split, but it's a, you know, a 60, 40 split. They committed to putting the real entity on a lease. It was a successful good location. It was a lower risk for both sides and everybody kind of recognizes it.

Speaker A: It's a profit sharing lease. Correct. Does that in that instance, and not to get too much of the legal language here, but does that mean that the definition for rent equals X percentage of ebitda?

Speaker B: No, it's usually, there's usually a threshold.

Speaker A: Okay. So there's a minimum base.

Speaker B: Correct. Uh, and then above the threshold, there's a certain way of structuring it one way versus the other, depending on a lot of different instances and how the business continues to grow. And then the second one was there's a newer operator that was focused on finding something that is really cost effective in the right location. They did not have the entity, they did not have the money for the construction, but they had the Grit to get in front of the landlord, to go see them in person, to sell them on the case, to help them understand what the business is and what the background of the business is. So there was a lot of personal touch that you know, the landlord felt comfortable to then take the risk and say, you know what, we'll give it a shot. And then, then we found uh, a company that was able to finance the construction piece.

Speaker A: I imagine the operator took the uh, risk on the construction financing.

Speaker B: Yes.

Speaker A: And did the operator have to put any cash or hurt money into the deal so the landlord would feel comfortable or they just like, we like the relationship here, we trust you?

Speaker B: Well, it's a good question. No, everything was stripped down in exchange for a low base and free rent. And so in that instance the operator uh, is saying, yes, we're going to take the risk on the construction but we're going to have a good ramp up time where we can cover the bulk of the construction cost and start making some money. So everybody wins. And in that instance the landlord, landlord's preference was not to lay out capital cash.

Speaker D: Right.

Speaker B: Because they're, they're kind of low debt on the building. Historically they've leased the space and they kept the tenants in the space and uh, on the renewal basis and they just wanted to focus on the cash flow. Right. There's that bulk of landlords that exist uh, out there today. So to your point, there's, there's, there's very, there's a lot of ways to structure a deal.

Speaker A: Oh yeah, there's, there's a thousand ways to structure a deal until you get to the thousand first one, correct?

Speaker B: Yeah, correct.

Speaker D: Hey everybody, I'm breaking into the podcast. My name is Liz Elam, I'm the founder of Juicy and, and I wanted to break in and let you know that there's other ways to be connected to Juicy. So you can join Juicy membership. If you go to Juicy Co, which is GCUC Co on membership you can find um, a really great deal. Right now we're running a summer series and in July we're in the middle of it and our second speaker is going to be on at the end of July. So definitely look at joining membership which is also a great way to get discounts to Juicy events in live in person, in real life, which is where we all want to be right now is in real life. That is the future. In September we're going to be in beautiful Cape Town, Africa doing Juicy Africa for the first time. Antoinette is working really hard on that event. Head over to Africa Juicy Co for more information and to get your tickets. Then in October, we're back in London, which is always such a great event. London is such an amazing city. It's so vibrant. The scene is incredible. You should definitely consider attending. You can get information there on UK GC Co. Emily is working her tail off and it's going to be epic as always. And if that wasn't enough, we recently announced that Juicy USA 2027 is in one of my favorite cities in America. The vibrant, the amazing Miami early birds are up. They're never going to be this cheap again. So also look at Juicy Co for a link to Miami Early Bird tickets. That's the only place you'll find those tickets. Anyway, we're over here, busy thinking of new and exciting ways to educate you guys and inspire you guys. Hope you're enjoying the podcast. We had such a great time at GC's 50th with Caleb and Brave, and now I'm going to turn you back to it.

Speaker A: Just today I was having a chat with an operator and I'd be curious to see how you might start this conversation with them. They, uh, have a lease for their space recently M. The landlord has come to them and said, hey, we like your lease. We have some extra space over here. What if we do a partnership on it? We'd like you to expand the building and we'd like to be, you know, be a partner on that. Partner can mean a lot of things. How would you advise this operator to be thinking?

Speaker D: Mhm.

Speaker B: First, I would evaluate the space and understand what the bones are H Vac, what the floor condition is, what the ceiling condition is. Right. So you want to be able to quickly ballpark the construction cost and what it would take to, to get it to the right place. The landlord might say, don't worry about it, I will, I will do the construction. But I like what you're doing on the second floor and this is a third floor and I want to have a good partnership with you and let's design it together. So I would then evaluate the profile of that landlord.

Speaker C: Yeah. And the feasibility of them even having a partnership or making that deal in its entirety because ah.

Speaker B: And to that point, in that instance, you want to make sure that you just like each other. That's to me. Before you start any, uh, numbers, who is building who's. How much the share is and who the landlord is. Right. And what your relationship has been with them to date because those opportunities exist. But evaluating the actual partnership and who the day to day operator with you are going to be on the landlord side is the most important thing.

Speaker A: There's so many ways that particular deal could, could be cut. Of course, uh, we talked about uh, with this operator, whether partnership meant joint venture, whether it meant a management agreement or as you described earlier, a profit sharing lease.

Speaker D: Yep.

Speaker A: Um, so uh, you know, it'd be interesting, uh, I'll put you in touch with them to have a conversation. Do you think that the language is changing here? This is a bit of a, going in a different direction here in this conversation. But uh, it used to be that you know, traditional real estate looked at co working operators as a tenant and then you know, they looked at flex operators, serviced offices, executive suites. Here in the US we call it flex, we call it co working. Now you've got members clubs coming into the scene. Does enterprise care what it's called? Is it more about the product itself? Do we need a reset for the language?

Speaker C: You are co working as a uh, like the definition of that word is ultimately what you are doing. I do think like some of the more antiquated terms, again it is flexible office, it is a cowork operation. That's physically what you're doing. But to your, to your point about having private members clubs or you have these enterprise companies that might be coming in that, that want to have, whether that's privacy or there's like an eliteness to that feel or it's niche. Right. You've got uh, me personally I can speak to. I'm um, I'm a part of a executive women's organization. Right. A group called Chief and they have their own clubhouses throughout the US and now you've got female founders and some of these smaller organizations that could, that physically can use the clubhouse to work out of. You have conferencing space, you can have meetings, you have board, whatever. That's not how I utilize it. But it's for the community, it's for the, the, you know, the caliber of women that you're dealing with. I, I commercial real estate uh, is very male dominated. So it was like a carved out niche that I found to be really impactful for my business. And I think there are a lot of women even in, you know, around us right now that would be able to relate to that and be like, oh okay, there's, there's huge benefit to having like a carved out niche members club that is kind of under the guise of cowork and flex because it could be utilized as such. Now you've got Other private members clubs, Girls a member of one as well, where you utilize it more as like dining and taking clients out and wining and dining them. Now can you go work out of there? Absolutely. But I do think there's like a privacy to it. There's uh, an interviewing process, but it, it's still kind of under that cover of cowork operating. But I do think that it adds an added element to the concept as a whole. Right. People want to feel uh, it's, it's again like very common in New York, London, you know, I think it's evolving to LA a little bit as well. But people, people like to have that, you know, the nature of what it is as a whole.

Speaker A: So chief doesn't call themselves co working.

Speaker C: They do not.

Speaker A: But, but they have the product of

Speaker C: co working ultimately, yes.

Speaker A: So does not calling it co working matter to uh, clearly doesn't matter to you, but does it matter like the Saviles care that you're there?

Speaker C: No, absolutely not. Because I mean we live and breathe real estate. Right. A great organization and what they're doing is they're fostering a community of all different operators. Right. So it can ultimately act as a, a space. I have my own office. I, you know, you have your comfort, you have your team, you've got access to whoever. Which I think is a great part of the whole return to office strategy as a whole. Which is a separate conversation. But I think that is again how like the flex cowork operators, there's been this ramp up again, you know, coworks, old news at this point. It's been around for so long, but how that's evolved post pandemic and how people are returning to the office and utilizing that space I think is incredibly important. And whatever you want to like coin it, you want to call it a private members club, you want to call it like a hospitality membership, you want to call it an amenity to a building at the same, uh, you know, at the end of the day, like by definition, like I mentioned, that is what you're physically doing. It's just kind of how it's branded. And to be quite honest, I think it needed a little bit of a rebrand.

Speaker B: And I would also add to Shay's point, it depends on who you're marketing it to.

Speaker C: Yeah.

Speaker B: If you're marketing to the members. Yes. You want to spin it. If you go in front of the landlord and you have a co working business, you have to tell them it's a co working business. Start there.

Speaker A: Well, if you're a member's club. So how, if they're not calling, telling

Speaker B: their landlords that's good, then that's different. Okay, if you're uh, business like Chief, then, then yes, your, your message to the landlord is different.

Speaker C: Right.

Speaker B: Or different structure, different ownership. But if it's a, if it's a straight co working business, which is great and it's been existent and it is growing and it's going to do well, ah, it's a proven business with the landlord. Start the construction with. We're uh, start, start the discussion with saying that you are co working.

Speaker A: So coming back to Enterprise Flex, when you talk about Chief and your own personal experience, is that solution, that product coming into the enterprise conversation or is that more of a B2C sort of play?

Speaker C: I think it's becoming more evolved and I think it's becoming a part of the conversation. You know, again, it depends how big the office space is. If we're speaking to Chief, that's 50,000 square feet. You can have, you know, you can be a small organization that is operating out of Chief. And so at this, at the end of the day, you are operating as a coworker. Now there's a cost comparison.

Speaker A: What Savills do that deal, they broker that deal.

Speaker C: Yes, absolutely. Okay. Oh, I'm sorry. Well, no, the core deal itself, not, not if you have a membership. Like if we started our own, like we have our own company and we're like we have 10 people. We, if we sign up for an organization like Chief, we're funding those membership costs. We're not brokering the deal with Chief. Like Chief's not paying out, uh, brokers as a part of the deal structure. So, so the broker involvement in a membership and a private membership structure, completely

Speaker B: different there is from our, let's put it this way, there is no broker involvement in the membership structure. But to answer your point, will we do that deal? Yes. Will we do a, uh, deal for five people, Company that is on an upswing and, and they want to grow, but they need the right real estate partner to help them navigate through that future growth? Absolutely. Um, and you know, we'll show them, we'll guide them and if it's five people for, you know, for $10,000, we want to build that relationship and grow with them. We started working with a company that got their seed round of um, you know, $3 million. They needed office space, they needed to figure out where to go. And then they also had a lab component because they're AI company. That's focusing in a very specific arena. We did a deal for six months, we did a deal for two years with termination fee. Then we moved them to a building where they, they could use the space to create a lab inside the space and then consolidated them to that. So in the course of two and a half years we did five deals for them. Getting them into short term space, co working, then getting into the uh, direct from the landlord space for a very short period of time, finding the right pre build that's ready to go, then subleasing the space, uh, uh, where they were, then getting them into the one and then expanding, then making sure that. So we want to do that. That's how we built the relationship and when they hopefully grow, they'll remember us. But that's how we built our relationships and that's how we start the process and you know, the young founders, that's who we want to be around.

Speaker A: So I think you know, you described the extension of the lifetime value of that customer for yourselves and I, I have a, a theory here that um, a landlord who in, in our last podcast we talked about a scenario of a, a full stack building.

Speaker C: Mhm.

Speaker A: That has all the different products in it. So if a landlord wants to extend the lifetime of a customer in their building, they deliver all these products in some way. Maybe their partnership with a co working operator or a members club. In that context, what would you say to a landlord today? That if they're thinking I want to extend the lifetime value of my customer and have these different products, how should they be thinking?

Speaker B: In my opinion, every building that's above half a million, half a million square feet should have a co working component.

Speaker A: Every building above 500,000 square feet should have a coworking component.

Speaker B: Correct.

Speaker A: There's a stat for you right there.

Speaker B: There you go. Uh, and I'm serious because there's. In every building that's fairly well leased up, there's always activity, right? There's always activity. There's always tenants that are moving up and down. Um, there's construction happening in the building, um, so they could use the co working space. And a lot of times even if it's co working that's provided by the landlord, some tenants will pay a little bit higher rent or they'll pay a little bit more in their OPEX share in order to cover some of the cost of coworking. But it really extends a lifetime of a tenant being in one building because they can utilize it differently.

Speaker A: Shane, what do you think?

Speaker C: I'll add to that. I think we talked about earlier in the conversation, you know, the ambiguity of, in the life cycle during this deal. Right. You know, it can be very touch and go if you had, uh, you know, a landlord that had some type of cowork operator in the building, whatever type of amenity. When you get into these like contentious parts of a deal, you know, things fall out, deals die. If you have that amenity within the building, especially if you cannot mechanize a deal in time to have that, whether that's as overflow space, as temporary space, what have you, that's mutually beneficial to everybody involved.

Speaker A: I want to grow my portfolio. I want to get more locations. Should I be targeting buildings that have half a million square feet or more?

Speaker B: You should, because the building that is a little bit larger in size will automatically have customers or will automatically have people in those buildings that will say, oh, you know, to their friends or to their business associates, hey, our building on the second floor or third floor, they just open a co working space. If you're, you know, looking, it's so it creates almost, you know, marketing right out of the gate. Now there's instances where their co working businesses are in smaller buildings, but uh, in that, but they, but then they scale up in that building and they take a majority of the building.

Speaker D: Right.

Speaker B: And then they do different marketing. Right. They are like the anchor tenant of the building. So that's a, that's a little bit of a different business model. But know you, yes, half a million square feet gives you a good amount of leverage, you know, to, to, to be successful, um, as a, as an

Speaker C: operator, I'll, uh, add this as a disclaimer that's very much stands true. It's very market specific. Right.

Speaker B: Like, right.

Speaker C: You know, this is very New York City geared. But we help, you know, you go back to co workers and flex. We advise portfolio companies all over the world. And so a lot of the ways that companies are testing out markets is by making some type of cowork flex deal in order to test like the longevity, the volatility of talent, what have you in that particular market. So that ebbs and flows like you're doing a deal on, you know, some of these tier one cities. In tertiary markets, the structure of the building, the deals, the ownership, the lender, what have you, varies drastically. And that's why it's really important one, uh, I think, at least from our lens, to have a global platform to be able to utilize partners in all these different markets. Because as a flex provider, as an occupider, whatever you want to qualify yourself as you need to understand each of these markets and the nuances to these markets when you're going to make a decision like that, irrespective of the size of the project. But you uh, know I would stand by that as well. I think it's incredibly important to focus on some of these larger buildings, but I would make sure you understand that market and the product type in that market.

Speaker A: We have a question from Jerome Chang out, uh, of la. He's in the audience today and he wants to know, in your experience, Kirill, what percentage of landlords understand, fully understand and comprehend what coworking actually is and how it can benefit their building?

Speaker B: From my experience in New York City specifically, most landlords know what coworking is or somehow have been approached by a co working operator. If the landlord is not familiar with the business, they will likely quickly pick up on it. And if they're not familiar with it, I'll, uh, take a step further. If they're not familiar with it, they're likely going to be really hard to do a deal with and you likely

Speaker C: don't want to enter into a partnership with them regardless. You know, in la, I was a broker in LA for almost a decade. I think New York is a little bit more advanced than la, especially in the office world. I think it's just like one step behind. LA has, is more notorious for having more mom and pop type ownerships. It's less institutional money like you have in New York, which falls into Kirill's example. So yeah, I would say the percentage of ownership in LA is smaller, but I think it's such a, uh, such a common phrase now. Conceptually I think I'd be truly shocked if an owner of an asset didn't understand the concept. But again, it goes back into, you don't want to go into business with that, with that person if they aren't on board with what you're trying to build because then you're going to set yourself up for failure.

Speaker A: Well then it goes back to what you said earlier about knowing the market but also knowing the profile of the landlord. Yes, this is great. This has been a good conversation. I hope to see many more partnerships out there. In the uk we see a lot of landlords trying to do flex themselves and like you said earlier, some have, some are succeeding and some aren't. And ultimately that partnership model is becoming the way of the future. Thank you, uh, for taking the time to share your insights. Thank you for tuning in and until next time, take care of yourself.